14 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 B. Multiple Incentives for Exports and Priority Sectors • Preferential CIT rate: 15 percent if 50 percent of production is exported outside EAC or is in the priority sectors; 0 percent if regional headquarter is in Rwanda • Accelerated first year depreciation rate of 50 percent • Exemption of capital gains • Duty-free imports of machinery and inputs within EAC C. Efficient, Supported Processes • Highly digitalized and efficient administration (6 hours to register a business) • Free business registration • One stop center for investors with a dedicated investment acceleration and aftercare team D. Commitment to Foreign Ownership • No restrictions on foreign ownership • No restrictions on capital flows • Capital gains exemption on sale or transfer of shares Rwanda is among the countries with the open visa regimes in Africa, a reputation for low corruption and good ranking in economic freedom. Figure 2.6 presents rankings in visa openness index in Africa for the period 2016-2020. In 2020, Rwanda ranked 5th out of 53 African countries. Figure 4: Visa openness Index Ranking in Africa Visa Openness Index 2016-2020 Ranking out of 53 Countries 9 0 11 20 30 40 50 2016 2017 2018 2019 2020 9 3 4 5 Source: RDB With regard to global corruption perception index, Rwanda ranks 49th out of 179 countries as depicted by figure 2.7 below.
15 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 Figure 5: Global Corruption Perception Index Ranking out of 179 Countries 0 20 40 60 100 120 140 160 Ranking in Global Corruption Perception Index 2016-2020 50 48 48 51 49 2016 2017 2018 2019 2020 Source: RDB Figure 2.8 shows the economic freedom index scores for Rwanda, an index that combines scores on the rule of law, regulatory efficiency, government size and open markets. In 2020, Rwanda had a score of 70.9, ranking 33rd among 180 economies. Figure 6: Economic Freedom Index Scores Score in Index of Economic Freedom 2016-2020: Rwanda ranks 33 among 180 economies 85 75 65 55 45 35 25 2016 2017 2018 2019 2020 63.1 67.6 69.1 71.1 70.9 Source: RDB
16 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 CHAPTER 3: FOREIGN PRIVATE CAPITAL IN RWANDA 3.1. Brief Methodology The FPC 2021 census covered 274 private institutions that hold investments from abroad, of which 227 institutions responded, representing an 82.8 percent response rate, as shown in the Figure 1 below, and using mainly the remotely and online channels.
17 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 Figure 7: FPC 2021 Census’s Distribution and Response Rate (in %) Source: FPC 2021 Census The FPC 2021 census collected data for the year 2020, from resident private companies that received and hold foreign investment in form of financial equity and non-equity. The data collected is categorized by industrial sector, as defined by the International Monetary Fund (IMF) Standard for Industrial Classification. Therefore, prior to the fieldwork, the technical team from the 4 institutions reviewed and updated the database of eligible companies to be included in the census. The questionnaire is designed based on the Balance of Payment Manuel Sixth Edition (BPM6), published by the IMF, and it is meant to capture information on industrial classification, equity, non-equity, foreign affiliate trade statistics and investors’ perception on Rwanda business environment. Before fieldwork, the preparatory workshop was organized, during which the technical team were trained with an emphasis on investment components of the Balance of Payments (BOP) and International Investment Position (IIP). The training also included; understanding the survey questionnaire, familiarization with investor perception questions, and other technical aspects like how to extract information from a company’s financial statements, data consistency checking, and discuss census logistics.
18 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 Therefore, to have accurate statistics, the technical team assisted most of the companies to fill the questionnaire. The technical staff discussed with each respondent to clarify any issue that was not clear to the respondents and thereafter, collect the completed form and the financial statements. The fieldwork was done on online channels using communication with emails and phone calls, and few respondents requested physical meeting. Data entry and processing for foreign financial assets and liabilities (FAL) was done using the Private Capital Monitoring System (PCMS) developed by the Macroeconomic and Financial Management Institute for Eastern and Southern Africa (MEFMI), while the CsPro software was used for that the data processing of foreign affiliates statistics (FATS) and perception. T o ensure data quality, completeness, consistency and reliability, the technical team reviewed and corrected the completed questionnaires using the audited financial statement for each company. Lastly, the collected data were compared to the information provided in the previous censuses for each enterprise, for consistency check. 3.2. Foreign Private Capital in Rwanda The total Foreign Private Capital Inflows are classified into three categories. First, Foreign Direct Investment (FDI) is composed of; equity investments from non-resident investors with a shareholding of at least 10 percent of the company’s total capital; reinvested earnings and debts from affiliated investors. Second, Portfolio Investment (PI) consists of tradable instruments with shareholding structure of less than 10 percent and finally, Other Investment (OI) comprises of; loan, trade credit and advances, currency and deposit, other equity and other account receivables and payables between non-affiliated/ unrelated entities. Rwanda capital inflows dropped to $ 386.4 Million in 2020 from $ 505.0 Million a year earlier, a decline of 23.5 percent, reflecting the negative effects caused by the COVID-19 pandemic. Specifically, inflows from foreign direct investment and loans inflows from non-affiliated lenders dropped by 22.5 percent and 27 .0 percent, respectively, outpacing the increase in portfolio investment. As of end December 2020, Rwanda’s total FPC stock stood at $ 3,780.8 Million, an increase of 8.0 percent from $ 3,502.1 Million in 2019. 19 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 Figure 8: FPC Inflows and Stocks ($ Millions) Source: FPC 2021 Census Regarding the composition of total capital inflows, FDI represent the largest portion of Rwanda capital inflows with 71.0 percent, followed by other investment (28.5 percent) and portfolio investment (0.5 percent). T able 1: FPC Inflows by Category ($ Millions) Ye a r 2014 2015 2016 2017 2018 2019 2020 % Change % Share FDI 458.9 379.8 342.3 356.4 381.9 353.8 274.1 -22.5 71.0 PI 5.6 2.5 3.0 0.3 5.9 0.2 2.0 952.3 0.5 OI 96.3 93.9 195.9 95.4 75.2 151.0 110.2 - 2 7.0 28.5 T otal FPC Inflows 560.8 476.3 541.2 452.2 463.0 505.1 386.4 -23.5 Source: FPC 2021 Census In terms of stocks, FDI remained the main component of total FPC stocks with a share of 71.6 percent at the end of 2020, followed by OI accounting for 25.4 percent and PI representing 3.0 percent. Overall, total FPC stock stood at $ 3,780.8 Million at the end of 2020, up from $ 3,502.1 Million in 2019, an increase of 8.0 percent. T able 2: FPC Stocks by Category ($ Millions) Ye a r 2014 2015 2016 2017 2018 2019 2020 % Change % Share FDI 1,152.4 1,401.8 1,680.3 1,959.3 2,283.7 2,546.9 2,707 .1 6.3 71.6 PI 95.0 9 7. 5 100.5 103.9 109.3 109.5 113.3 3.5 3.0 OI 504.7 578.6 747. 1 772.8 804.9 845.8 960.3 13.5 25.4 T otal FPC Stocks 1,752.0 2,077 .9 2,527 .9 2,836.1 3,197 .9 3,502.1 3,780.8 8.0 Source: FPC 2021 Census 20 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 3.2.1. FPC by Sector of Economic Activity In 2020, the financial and insurance sector attracted the highest inflows amounting to $ 179.3 Million representing a lion share of 46.4 percent of the total FPC inflows and much higher than 30.1 percent of share recorded in 2019. The information, communication and technology sector (ICT) follows with a share of 13.0 percent in 2020, down from a share of 24.1 percent in 2019. In addition, with the decrease in the ICT sector, the investment inflows from wholesale, manufacturing, electricity shrank considerably, by 91.1 percent, 21.7 percent and 19.4 percent, respectively. In contrast, the capital inflows from agriculture and transport sectors rose significantly by 111.9 percent and 8.1 percent, respectively. T able 3: FPC Inflows and Stocks by Sector of Activities (percent Shares) 2018 2019 2020 % Share 2018 2019 2020 % Share FPC Inflows FPC Stocks Total 462.7 505.0 386.4 Total 3,197 .9 3,502.1 3,780.8 Financial 81.2 151.9 179.3 46.4 Financial 777 .7 876.8 1,022.5 2 7.0 ICT 82.6 121.8 50.1 13.0 ICT 778.3 866.2 868.0 23.0 Electricity 165.2 5 7.4 46.2 12.0 Manufacturing 466.4 500.7 521.5 13.8 Manufacturing 62.7 53.4 41.8 10.8 Electricity 391.9 423.8 490.9 13.0 Agriculture 15.2 18.1 38.3 9.9 T ourism 229.4 230.8 230.5 6.1 T ransport 11.1 8.6 9.3 2.4 Wholesale 190.4 219.0 222.9 5.9 Wholesale 2 7. 1 80.5 7. 2 1.9 Agriculture 118.2 130.4 157 .2 4.2 Others 1 7. 5 13.4 14.1 3.7 Others 245.6 254.4 267 .3 7. 1 Source: FPC 2021 Census 3.2.2. FPC by Origins and by Regions Mauritius continue to be the leading source of Rwanda’s FPC inflows. In 2020, FPC inflows from Mauritius represented the largest share of 35.2 percent, mostly invested in financial, ICT , manufacturing and electricity sectors. Inflows from United States (USA) represented 12.7 percent of total inflows followed by Kenya (8.6 percent), Netherlands (5.8 percent) and United Kingdom (UK: 5.1 percent). In terms of FPC stocks, investments from Mauritius takes leads with 25.2 percent of total followed by Kenya (8.9 percent), USA (6.1 percent), Netherlands (6.1 percent) and South Africa (4.9 percent). 21 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 T able 4: FPC Inflows and Stocks by Origin ($ Millions) 2018 2019 2020 % Share 2018 2019 2020 % Share FPC Inflows FPC Stocks Total 462.7 505.0 386.4 Total 3,197 .9 3,502.1 3,780.8 Mauritius 200.3 168.7 136.0 35.2 Mauritius 779.5 883.3 953.0 25.2 USA 22.9 2.8 49.1 12.7 Kenya 239.2 308.9 335.8 8.9 Kenya 33.5 73.6 33.3 8.6 US 182.7 184.5 229.6 6.1 Netherlands 70.5 1.0 22.5 5.8 Netherlands 211.5 2 07. 1 229.1 6.1 UK 14.4 76.0 19.6 5.1 South Africa 183.8 184.1 185.5 4.9 Nigeria 1.3 23.3 19.6 5.1 UK 111.6 1 2 7.4 144.6 3.8 Belgium 1 7. 8 29.7 11.8 3.1 PTA 117 .2 127 .2 135.5 3.6 UAE 1 7.4 14.5 11.3 2.9 Nigeria 47.4 70.6 93.2 2.5 IFC - - 10.5 2.7 IFC 68.3 63.7 67. 2 1.8 ADB 0.6 0.1 7.0 1.8 Luxembourg 74.7 76.2 76.2 2.0 Others 84.0 115.1 65.7 17.0 Others 1,182.1 1,269.3 1,331.0 35.2 Source: FPC 2021 Census Regarding the sources of FPC inflows by regions, the results showed that COMESA and SADC had the largest share, constituting 49.6 and 38.5 percent, respectively. Inflows from OECD, EU and EAC follows accounting for 27 .7 percent, 14.5 percent and 9.8 percent, respectively. T able 5: FPC Inflows and Stocks by region ($ Millions) 2018 2019 2020 % Share 2018 2019 2020 % Share FPC Inflows FPC Stocks TOTAL FPC 462.7 505.0 386.4 3,197 .9 3,502.1 3,780.8 EAC 35.8 77 .2 3 7. 8 9.8 312.6 381.6 408.6 10.8 COMESA 234.8 248.7 181.2 46.9 1,227 .3 1,405.3 1,509.9 39.8 SADC 2 07. 5 178.2 148.8 38.5 1,066.0 1,173.5 1,241.2 32.7 OECD 147. 3 144.6 1 07. 2 2 7.7 827 .8 889.0 984.6 26.0 EU 117 .9 130.2 56.1 14.5 629.1 674.2 723.2 19.1 ASIA 40.5 48.1 2 7. 2 7. 1 402.3 434.6 452.9 11.9 INT . ORG& BANKS 18.5 28.9 16.6 4.3 272.8 287 .5 303.4 8.0 Source: FPC 2021 Census 3.3. Foreign Direct Investment (FDI) in Rwanda In 2020, the total FDI inflows in Rwanda declined by 22.5 percent to $ 274.1 Million from $ 353.8 Million registered in 2019. The decline in FDI was mainly driven by a decline in loans from affiliated investor as well as the retained earnings, which outweighed the increase in new investment equity, as shown in the table 5. 22 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 The new equity investment inflows recorded in 2020 amounted to $49.7 Million that represent an increase of 9.1 percent, from $ 45.6 Million registered in 2019. The new equity investment inflows were mainly invested in the financial, manufacturing, agriculture and electricity sectors. The borrowings from affiliated investors decreased by 43.3 percent, standing at $ 94.4 Million from $ 166.5 Million recorded in 2019, while the retained earnings decreased by 8.3 percent to $ 130.0 Million from $ 141.8 Million registered in 2019. The decrease in retained earnings reflects accumulated losses driven by covid19 pandemic. The new FDI inflows led to an increase in FDI stocks by 6.3 percent to $ 2,707 .1 Million in 2020, of which borrowings from affiliated companies account for the largest share of 44.3 percent, followed by equity capital (36.5 percent) and retained earnings (19.2 percent). T able 6: FDI Inflows and Stocks by Category ($ Millions) 2014 2015 2016 2017 2018 2019 2020 % Change % Share FDI Inflows T otal Inflows 458.9 379.8 342.3 356.4 381.9 353.8 274.1 -22.5 Equity 129.6 110.0 83.6 78.2 1 3 7. 3 45.6 49.7 9.1 18.1 RE 1 7. 5 58.9 126.6 153.5 94.7 141.8 130.0 -8.3 47.4 Loans 311.8 210.9 132.2 124.8 149.9 166.5 94.4 -43.3 34.5 FDI Stocks T otal Stocks 1,152.2 1,401.8 1,680.3 1,959.3 2,283.7 2,546.9 2,707 .1 6.3 Equity 503.2 619.7 701.8 786.3 890.9 935.6 988.6 5.7 36.5 RE 144.2 74.9 170.8 282.2 378.8 485.1 518.9 6.9 19.2 Loans 504.9 7 07. 2 8 07.7 890.7 1,014.1 1,126.2 1,199.7 6.5 44.3 Source: FPC 2021 Census 3.3.1. FDI Inflows and Stock by Sector The 2021 FPC findings showed that the financial sector received the most FDI inflows in 2020 accounting for 39.7 percent of total followed by ICT (17 .4 percent), agriculture (13.4 percent), manufacturing (11.5 percent) and electricity (9.1 percent). The FDI stock remain concentrated in the ICT sector with a lion’s share of 27 .7 percent, followed by the financial sector (22.9 percent) and the manufacturing sector (12.2 percent). 23 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 T able 7: FDI Inflows and Stocks by Sector of Activities ($ Millions) 2018 2019 2020 % Share 2018 2019 2020 % Share FDI Inflows FDI Stocks TOTAL 381.9 353.8 274.1 TOTAL 2,283.7 2,546.9 2,707 .1 Financial 72.0 108.3 108.9 39.7 ICT 663.7 750.2 749.7 2 7.7 ICT 81.4 120.4 47.7 17.4 Financial 441.3 542.6 619.1 22.9 Agriculture 15.2 1 7. 9 36.6 13.4 Manufacturing 3 07.0 310.4 330.1 12.2 Manufacturing 28.4 13.0 31.6 11.5 Electricity 250.9 277 .1 305.0 11.3 Electricity 144.8 46.7 25.0 9.1 Wholesale 182.7 206.6 209.1 7.7 T ransportation 8.7 8.6 9.3 3.4 T ourism 1 9 7. 8 198.7 198.1 7. 3 Wholesale 15.9 2 7.7 5.8 2.1 Agriculture 60.8 73.6 100.3 3.7 Others 15.4 11.2 9.0 3.3 Others 179.5 187 .5 195.7 7. 2 Source: FPC 2021 Census 3.3.2. FDI Inflows and Stock by Origin Regarding the origin of FDI inflows, Mauritius leads with a large share of 40.2 percent, mainly invested in ICT , financial, manufacturing, electricity, agriculture, transportation and wholesale. The FDI from Kenya come on second position, with a share of 11.7 percent, followed by the FDI from the United States (9.3 percent) and United Kingdom (7 .1 percent) as shown in the table below. In terms of FDI stocks by origin, Mauritius, Kenya, South Africa, USA, and Netherlands remain the major sources, with a combined share of 60.9 percent of the total FDI stock. T able 8: FDI Inflows and Stocks by Origin ($ Millions) 2018 2019 2020 % Share 2018 2019 2020 % Share FDI Inflows FDI Stocks T otal 382 354 274 T otal 2,283.7 2,546.9 2,707 .1 Mauritius 197 169 110 40.2 Mauritius 796.0 911.3 955.0 35.3 Kenya 26 63 32 11.7 Kenya 182.2 242.0 2 67.7 9.9 USA 21 3 25 9.3 South Africa 179.4 180.1 181.5 6.7 UK 6 4 19 7. 1 USA 108.5 110.5 131.6 4.9 Belgium 12 22 12 4.3 Netherlands 105.8 106.8 113.3 4.2 Nigeria 1 23 11 4.1 To g o 63.1 63.1 67. 5 2.5 Netherlands 67 1 7 2.7 Ghana 67. 3 67. 3 67. 3 2.5 UAE 4 11 7 2.5 UAE 53.2 60.4 65.6 2.4 Others 47 58 50 18.1 Others 728.3 805.3 8 5 7.6 31.7 24 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 3.3.3. Income on Equity In 2020, the overall net profit of private companies dropped by 11.5 percent, amounting to $ 146.3 Million from $ 165.3 Million in 2019, mostly due to the impact of Covid19 pandemic and lockdown that negatively affected the business activities. The results showed the retained earnings decreased by 8.3 percent, stood at $ 130.0 Million, from $ 141.8 Million recorded in 2019, which represent 88.8 percent of the total profit and they were retained to safeguard capital and liquidity of the private sector’s businesses in order to be well prepared to respond to shock from the pandemic. On this result, the dividends declared reduced by 30.5 percent and stood at $ 16.3 Million, while the dividend distributed to shareholders reduced by 36.3 percent amounted to $ 11.2 Million. Figure 9: Income on Investment ($ Million) Source: FPC 2021 Census 3.3.4. Return on Equity The ROE is the amount of net income returned as a ratio of a shareholder’s equity. It measures the company’s profitability by revealing how much profit a company generates from shareholders’ investment. The net profit is the net income of the year before dividends are distributed to shareholders while the FDI stocks include the accumulated amount of equity capital and retained earnings.